With well over 30 manufacturers offering more than a thousand notebook PC models in the U.S. market alone, one niche segment that targets the road warrior is emerging: the sub-14-inch, "thin-and-light" form factor, intended to seduce mobile users everywhere.
In April, sales of thin-and-light notebooks hit new highs, with the systems capturing 30 percent of the retail notebook market. That number reflects the growing popularity of this mobile form factor and the subsequent price drops it has experienced. With more and more people using mobile technologies for work and personal use, manufacturers have been pressed to adopt cost-saving technologies, labor and parts.
To provide insights into the costs of manufacturing and labor for these increasingly in-demand lightweight machines, Current Analysis Labs studied the Dell Inspiron 600m notebook.
Product analysis
The Inspiron 600m houses a 1.3-GHz Intel Celeron M processor, a 60-Gbyte hard drive, a CD-R/DVD-ROM optical drive, 256 Mbytes of DDR SDRAM, and an ATI Radeon 9000 graphics chip with 32 Mbytes of dedicated DDR SDRAM.
The Dell system combines the portability of a thin-and-light laptop with the value of a mainstream consumer notebook. The thin-and-light classification denotes that the machine travels well, weighing in at less than 6 pounds, but that it still provides utility,with a screen that's large enough to be viewed easily (around 14 inches) and a keyboard large enough to accommodate comfortable typing. In its basic configuration, the 600m weighs less than 5.3 pounds and is only 1.2 inches thick when closed.
Various software packages come preinstalled: Windows XP Home, WordPerfect Productivity, Windows Media Player, H&R Block Tax, Adobe Acrobat Reader, CyberLink PowerDVD, McAfee VirusScan, Music Match, Netzero ISP, Paint Shop Photo Album, Dell Media Experience and a DVD decoder.
Complementing the portability is the Inspiron 600m's standard set of connectivity options to keep the consumer covered in both wired and wireless scenarios. It also includes an integrated modem and network interface. There is no FireWire port, but there are two USB 2.0 slots at the rear of the system for connecting peripherals. There are also the usual monitor-out, serial and parallel ports.
Dell has included a single PC Card Type II slot on the left side of the notebook, while the right is home to a CD-RW/DVD combo drive.
The Dell Inspiron 600m measures 12.4 x 1.2 x 10 inches and weighs 5.3 pounds. The package contains the notebook, power adapter, power cord, phone cord, catalog, instruction sheet, product information guide and software CDs.
Production cost analysis
Most of us are aware of the lower manufacturing costs that result when IT and consumer electronics products are outsourced, but how much should it cost manufacturers to stay competitive in today's notebook market?
To answer this question, we examined the Dell Inspiron notebook at a production volume of 1.5 million units and assumed the model was produced in Malaysia. To do this, our Labs used time- and industry-tested methodologies to estimate the purchase costs of commodity components, manufacturing costs of fabricated components and location labor rates.
When paired with the least expensive components, Malaysia proved to be an attractive country for manufacturing. Indeed, the final cost per unit was only $471.85.
Total manufacturing costs broke down as follows:
- packing total, $14.76;
- electronics total, $306.97;
- mechanical assembly, $133.74
- final prep, $0.66;
- keyboard and accessories, $15.72
At present, the manufacturer's suggested price is listed at $1,217. Under the previously stated manufacturing assumptions, this price delivers a profit of $745.15 before taxes and other tariffs.
Market analysis
It is no secret that although the U.S. notebook market has experienced significant growth over the past year, it has also been plagued with price erosion that has drastically narrowed manufacturers' profit margins. During the same time period in which the retail market saw sales growth of 43 percent, the average street price of notebooks decreased by 12 percent, from approximately $1,399 to $1,229.
This scenario holds especially true in the rapidly growing thin-and-light segment, particularly since the introduction last October of Hewlett-Packard's Jakarta 14W systems (the dv1000 line). Before October, thin-and-light systems accounted for only 10 percent of retail sales. But by April, thin-and-lights held a 30 percent share of the retail market. That means unit sales of this segment grew by 147 percent between October and April.
Unfortunately for manufacturers' bottom lines, however, the segment's ASP declined by 26 percent, from $1,517 to $1,129, during the same period.
The threat of price erosion increases the need for manufacturers to minimize their production costs. With an MSRP of $1,217, Dell's thin-and-light Inspiron 600m generated an estimated profit of $745. But to remain competitive, Dell offered a $400 mail-in rebate on the system, dropping the advertised price to $817-and its estimated profits to $345.
Dell's Inspiron 600m models compete directly against 14-inch widescreen models from Gateway and HP in retail. At the end of April, these 14W systems accounted for 17 percent of the retail market and 54 percent of the thin-and-light segment. Both Gateway and HP have priced their systems competitively, leaving little wiggle room for profit.
Gateway broke 14W price barriers in January when it launched its 3018GZ-with a Celeron M 1.3-GHz processor, 60-Gbyte hard drive, 512 Mbytes of RAM and a DVD/CD-RW combo drive-for $999 at Best Buy. HP responded with the comparable Compaq Presario V2205, for $879.
Both models compete against the Dell 600m analyzed in this article. At prices this low before promotion, manufacturers need to squeeze out as much production cost as possible.
Current Analysis expects to see continued growth in the thin-and-light notebook segment as additional manufacturers bring new systems to the table. The increase in competition, however, will drive prices even lower. Thus we believe that manufacturers with an efficient supply chain, like Dell, will have an edge over their competitors.
Nicole D'Onofrio (ndonofrio@currentanalysis.com), analyst for mobile computing at Current Analysis Inc. (Sterling, Va.)
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